Bloomberg News

Macy’s, Martha Stewart Return to Trial If No Settlement Reached

April 08, 2013

Macy’s Inc., Martha Stewart Living Omnimedia Inc. (MSO:US) and J.C. Penney Co. (JCP:US) return to court today to resume a trial that began Feb. 20 over the right to sell some Martha Stewart merchandise unless a settlement is reached.

New York State Supreme Court Justice Jeffrey K. Oing in Manhattan ordered the two retailers and home merchandise company into mediation on March 7 after about two weeks of proceedings.

Unless the three parties tell Oing that they’ve reached a resolution or need more time for mediation, the trial will continue.

“If they had reached an agreement we’d know about it,” Steven R. Gursky, an attorney with Olshan Frome Wolosky LLP in New York who focuses on contract negotiations and intellectual property, said in a telephone interview. It’s more likely they haven’t reached a settlement because they didn’t have to wait for the judge to take a break in the trial just to talk to each other, Gursky said.

J.C. Penney in December 2011 acquired a 17 percent stake in New York-based Martha Stewart Living for $38.5 million as the department-store chain seeks to revive sales with new mini- stores dedicated to Martha Stewart and other brands.

Macy’s, which has sold Martha Stewart-branded home goods since 2007, sued her company in January 2012, saying it had the exclusive right to sell items in certain categories including bedding and cookware. Macy’s sued Plano, Texas-based J.C. Penney about three months later.

Mediation Program

Mediation is part of a program in the Manhattan branch of the commercial division of the New York State Supreme Court that allows for the resolution of legal disputes outside of litigation, according to the court’s website.

Cases may be referred to the program by a commercial division justice, the administrative judge or an authorized non- commercial division justice, and is mandatory, according to the website. The parties may also agree to mediation.

Parties who take part in the alternative dispute resolution program, or ADR, can choose mediation, a neutral evaluation or arbitration, although “almost all cases in the program have been mediations,” according to the website.

“The experience of those who have taken part in the program confirms that cases that are perceived by the parties to be incapable of settlement and which might not be brought into ADR on a voluntary basis in fact often do settle,” according to the website. The parties have the option to send the dispute to binding arbitration if mediation doesn’t produce a resolution.

‘Reap Rewards’

Jim Sluzewski, a spokesman for Cincinnati-based Macy’s, and Katherine Nash, a spokeswoman for New York-based Martha Stewart Living, declined to comment on progress of the mediation. J.C. Penney didn’t immediately return a telephone message left with media relations seeking comment.

Lawyers for Macy’s, the second-biggest U.S. department store chain, have argued that J.C. Penney is trying to “reap the rewards” of its work with the Martha Stewart brand, which the chain says it rebuilt after Stewart’s release from prison in 2005, when her products were sold at Kmart.

Martha Stewart Living has defended its agreement with J.C. Penney, accusing Macy’s of breach of contract and saying the retailer stocked and priced Martha Stewart products in a manner that favors private-label brands. Martha Stewart Living also said Cincinnati-based Macy’s couldn’t have exercised a five-year renewal option in January 2012 because of the breach.

Unbranded Goods

Oing said on March 7 that he will listen to arguments on Macy’s request for a preliminary injunction blocking J.C. Penney from carrying unbranded goods designed by Martha Stewart Living in the exclusive categories if the three sides haven’t come to a resolution. J.C. Penney agreed not to stock the items until the trial resumed.

Ordering the three sides to mediation was a “message” from Oing “to get the Macy’s people to move,” as Martha Stewart Living “hadn’t done anything to advance their cause,” Gursky said.

“The Martha Stewart people had very good indication that they should change their position,” Gursky said. “The Macy’s people really could have said, ‘We might as well just wait because it’s all going well.’ So I think those comments from the judge were just a way of saying, ‘This can’t just be a one-sided discussion so don’t be so sure of what I’m going to say, go the table and negotiate in earnest.’”

Anthony Michael Sabino, law professor at Peter J. Tobin School of Business at St. John’s University in Queens, New York, said that “it would not surprise me if, when this is all said and done, that these parties will go the rest of the way and just say let the judge decide. They both have a lot invested, not just in terms of the money, but in terms of their public perception.”

The cases are Macy’s Inc. (M:US) v. Martha Stewart Living Omnimedia Inc., 650197/2012; Macy’s Inc. v. J.C. Penney Corp., 652861/2012, New York State Supreme Court (Manhattan).

To contact the reporter on this story: Chris Dolmetsch in New York State Supreme Court at 8969 or cdolmetsch@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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Companies Mentioned

  • MSO
    (Martha Stewart Living Omnimedia Inc)
    • $4.55 USD
    • -0.02
    • -0.44%
  • JCP
    (JC Penney Co Inc)
    • $8.65 USD
    • -0.01
    • -0.12%
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